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Inflation slows to 2.4% in January
US consumer prices rose at their slowest annual pace since May last month, as energy and used car costs declined, the Labor Department reported on Friday.
Key figures and reactions
The consumer price index (CPI) increased 2.4% in the 12 months through January, down from 2.7% in December. The deceleration has intensified calls from President Donald Trump and allies for the Federal Reserve to reduce interest rates, arguing the economy no longer risks a price surge.
The White House swiftly hailed the data, declaring Trump had "defeated Joe Biden's inflation crisis" and predicting further economic acceleration if the Fed makes "long-overdue" rate cuts.
Analysts caution on future risks
Some economists warned that progress toward the Fed's 2% target could stall if companies fully pass on tariff costs or labor shortages push up service prices. For now, however, commodity prices outside food and energy remained stable, showing little immediate tariff impact.
"The effects of tariffs remain uncertain, and January's figures may have been influenced by other data quirks," said Neil Birrell, chief investment officer at Premier Miton Investors. "Still, the report likely eases the path toward a rate cut sooner rather than later."
Neil Birrell, Premier Miton Investors
Mixed price trends across sectors
Service costs continued to climb, with personal services like dry cleaning and haircuts rising 1.6% from December and nearly 7% year-over-year. January also saw jumps in cigarette prices, airfares, and music streaming subscriptions.
Yet inflation moderated for many goods. Rents increased just 0.2% from December, down from 0.4% the prior month. Grocery staples also saw slower price growth: steak prices fell over 2% from December, though they remain up nearly 13% from a year ago. Egg costs dropped more than 34% compared to January 2025.
Market outlook and Fed signals
Markets reacted modestly to the inflation report, with traders still expecting a Fed rate cut in June. Atakan Bakiskan, US economist at Berenberg, called the start of the year "ideal" for Fed officials, citing strong job growth and stable inflation.
However, he cautioned that labor shortages could eventually push wage growth higher, keeping services inflation elevated and delaying a return to the Fed's 2% target-a milestone the central bank has missed for 59 consecutive months.
